Homeownership has always been a goal for many people, but with the current economy, it may be more difficult than you think. You could end up spending even more on your home and less time enjoying its perks!
It’s no secret that the cost of living keeps going up. Rising inflation is a reality we all have to face, and it seems like home prices keep rising year after year.
When the cost of almost everything increases, one method to safeguard personal funds is to acquire the appropriate type of property at the proper time.
During periods of price growth, the average price of goods and services increases rapidly. This can be a challenge for first time buyers, especially in Toronto, as their income may not grow at the same pace. However, it can be a great opportunity to invest in real estate during this time.
Pros and Cons Of Buying in the Current Market
Housing affordability is one of the first casualties of inflation. The inflation rate in Canada jumped to 6.8 per cent over the past two years, the fastest year-over-year increase in the consumer price index in over 31 years, statistics Canada data showed.
The central bank has raised rates four times since July 2020 to bring rising prices back to its two per cent target – a level deemed optimal for economic growth. But inflation has continued to rise, driven by higher prices for gasoline and other energy products, shelter and food.
Inflation can have a serious impact on the housing market, and not only in Canada. Rising interest rates, for example, can lead to higher housing prices as buyers compete for a limited housing supply.
This can make it difficult for people to afford a home, especially if their income is not keeping pace with rising prices, meaning that the housing demand is outpacing the supply.
To make the best decision on whether or not to buy a condo in this current market, you need to weigh the pros and cons carefully. Here are a few criteria you can use to gauge whether your desire to buy turns into a wise financial and emotional decision:
- Your mortgage payment will be less than your rent. Do your homework and determine if renting makes sense compared to buying in your market.
- You have a down payment. You’ve done your research and know how much of a down payment you want to make, what types of mortgages you can get, and you already have money saved up in the bank.
- You have been pre-approved for a mortgage. Pre-approval tells sellers that you’re serious about the offer and sets the parameters on how much home you can buy. Mortgage costs are at an all-time low, so this is a great time to buy.
- You are willing to be patient. You may well have to make several offers on several homes before an offer is accepted. Not feeling rushed or pressured will help you save money, not overspend, and keep your sanity while buying.
- Renting is still an excellent deal in your market. If renting can save money and help with your budget, consider putting that difference between rent payments into an account each month instead so when the time comes for buying, say…a house or condo in the spotless condition, it will be easier on all sides in a long term run!
- You are struggling with a down payment. The down payment for your first home is an important decision and can be one of the largest financial commitments in life. It’s smart to research programs that offer assistance with this cost, such as those offered through banks or credit unions, where borrowers may find special rates on loans!
- You can take some time to improve your financial situation. Pay off any debt to increase the amount you can afford, improve emergency funds or save for unexpected expenses with better interest rates in mind!
- Homeownership is stressful for you. If you can’t sleep at night because your mortgage payments are making it hard for there to be any peace in this world, then buying a home might not feel right just yet-deferring ownership may help alleviate some stress!
How Inflation Impacts Housing Prices and Mortgage Rates
The cost of housing has been on the rise for a few years, especially in the Greater Toronto Area. This is due in part to the rising interest rates, the housing market, housing prices, and housing supply.
Housing affordability is also a concern for future homeowners. When it comes to buying a condo, there are several factors you need to take into account. Housing inflation can have a big impact on both home prices and mortgage rates.
In general, when inflation is high, home prices go up. This is because the cost of construction materials and labour increases. As a result, builders pass these costs on to homebuyers through higher real estate prices.
Household income has not been keeping up with the increased cost of housing. The interest rates have been rising, causing housing costs to increase. This makes it difficult for people to afford a home, especially if their income is not keeping pace with price growth.
In addition, high inflation can lead to higher mortgage rates. This is because lenders try to protect themselves from inflation by charging higher interest rates. As a result, your monthly mortgage payment could be much higher than it would be if inflation was low.
However, there are some exceptions to this rule:
Housing is a Good Asset
Housing is a good investment when it comes to inflation because the home’s value will rise with our country’s growing economy. Plus, you can borrow money against your house and get an extra boost from being leveraged in this way too!
However, there are some downsides: if interest rates rise or stay about the same, but prices go down, then the total amount paid for housing may not increase even though it’s worth it.
Housing Supply and Demand Comes Into Play
When interest rates are high, it can be difficult to borrow money. The result is that people may choose not to use their loans or, if they do, have them paid back quickly with higher monthly payments, which means fewer buyers in the housing market, eventually leading to lower home prices as well!
Inflation Needs to End at Some Point
Continued and rampant price growth is hurting the economy both nationally and on a personal level. It has a devastating effect on people on fixed incomes, especially the elderly.
It makes international competition more difficult as currencies depreciate. And then inflation ends at some point, whether due to the course of events caused by devaluation or by the aggressive monetary policy actions to reduce the supply of currency. It cannot go on forever, and historically it expects to decline.
3 Tips on How to Find the Right Condo During High Inflation
To be clear: It’s not impossible to buy a home in a market with high inflation, but it’s not easy – and often expensive. While it’s impossible to completely avoid the effects of inflation, industry professionals say some strategies can help you mitigate its impact.
Adjust your budget
When the cost of goods and services increases, it’s important to adjust your house budget accordingly. One way to do this is to ensure you’re not spending more than you can afford on rent or mortgage payments. You need to understand when it’s time to walk away.
If you plan to spend more than before, you also need to consider a larger down payment (10% of a $1,500,000 home is a lot more than 10% of a $1,000,000 home), higher cost of living and rising prices for related goods and services – such as those associated with moving, maintaining and repairing the home.
Expand your home search
When you adjust your budget, you may also want to reconsider your home search strategy. This may mean looking at smaller properties or townhouses, more rural areas that are less sought after, or simply shopping in a lower price range.
If you choose the latter option, be careful – especially if considering renovations. Like everywhere else, construction materials and labour prices are rising, so it will cost you more to renovate or remodel a property than it used to.
Think beyond a 30-year fixed-rate mortgage
Finally, if you want to cut costs in the face of inflation, it’s important to choose your mortgage carefully. Many options may work for you as a homebuyer, and putting a 10 percent down payment and getting a 30-year mortgage is not always the best option.
An adjustable-rate mortgage (ARM) may be a better option for some buyers. They have lower rates for the first few years of the loan term -usually, three, five or seven years -and the rate can adjust after that. This may be the best option for buyers who know they will not stay in the house for long.
There are loans with low down payment requirements and no mortgage insurance costs, which can soften the blow of inflation for qualifying buyers. Before looking for a home, talk to a loan officer or mortgage broker about what loan programs you may qualify for, and be sure to store around. Rates and terms can vary greatly from one mortgage company to another.
There is enough housing in the market for home prices to stabilize, and with a little effort, you can purchase real estate that’s right for you. Housing corporation is still offering great deals on pre-construction condos, so it’s a good time to buy. The market will correct itself, and when it does, the average price of houses will be worth more than when you purchased them.